Where Did All the Money Go?
Toward the end of her life, my grandmother ran out of money. In a way, she was lucky – she had family that could help her, but it was a jarring disruption at a difficult time. And, it should never have happened – her father owned an extremely successful brokerage, which surely had the assets to provide for his descendants for the rest of their lives.
So what went wrong?
The Great Depression didn’t help. But my great-grandfather also failed to protect the substantial wealth he had accumulated. He focused his attention on the business and didn’t take the proper steps to protect his personal wealth. In my experience, this is not uncommon – many business owners lack the time and/or skills to take care of themselves first.
According to surveys conducted by CEG Worldwide,* successful business owners know what they should be doing to achieve their personal and estate goals. But the statistics show that, in a high percentage of cases, they do not implement the appropriate strategies.
Let’s start with everyone’s favorite topic – taxes. In a survey of 513 business owners, an unsurprising 94.3 percent said they were interested in ways to lower personal taxes. Yet only 23.6 percent are working with tax professionals. The remainder – more than three-quarters of business owners – are doing nothing. They know they should do something … but they don’t.*
Example: estate planning strategies
When it comes to providing for their heirs, once again business owners recognize the importance of planning. In fact, 73.1 percent have an estate plan. So, what’s the problem? Well, circumstances change: 65.6 percent of business owners report that their estate plan is five years old or more; 69.1 percent say they have experienced a life-changing event since implementing their plan; 54.4 percent say their wealth has increased in that time.* Yet their plan remains unchanged. If they ran their businesses this way, they wouldn’t last long!
It’s great to have a plan – but if the plan is outdated or inadequate for your current situation, that’s a problem. Think back to my grandmother – if her father had a plan in the first place, not updating it after the Great Depression could still leave her penniless.
Example: asset protection strategies
If you’re a business owner, protecting your assets from legal entanglements is (or should be) a serious concern. Everything from divorce to unjust lawsuits can be a
threat to the assets from your business. Again, business owners “get it” – 78.9 percent say they are concerned about asset protection. And yet, just 15.1 percent have an asset protection plan in place. When asked why they don’t have a plan, a remarkable 60 percent of these savvy, successful business owners say that “no one showed them how.”*
Example: charitable giving
Another common area of inertia is charitable giving. Many business owners are generous – 68.2 percent say they are interested in doing more to support worthy causes.* Why aren’t they doing it? It might be a matter of awareness and/or knowledge. Charitable trusts, family foundations and other vehicles can be complicated to set up and time-consuming to maintain. But the benefits are substantial, for both the business owner and his or her chosen causes. This is one area where professional advice can help.
What in the world is going on here?
Why is there such a profound disconnect between attitude and action? Were business owners too busy? Unaware of their options? Not sure of the benefits? Maybe, could be, perhaps. But in each example, a majority of business owners recognized the need for action, yet only a small percentage of them actually did it.
What about you?
92.8 percent of business owners say they would like to increase their personal wealth. Are you one of them? If so, what are you doing about it? My team offers a “Second Opinion” to review the effectiveness of personal financial plans.
There’s another reason that a Second Opinion may be a good option: 72.9 percent of business owners report having hired a professional that did not provide all the services they desired. 22.2 percent say their expectations were not met.
Maybe these business owners don’t trust the so-called experts, so they do what many of us do when confronted by difficult choices – nothing. But, as the story of my grandmother shows, not having the right plan can have dire consequences.
*Source for all data in this article: “Becoming Seriously Wealthy,” CEG Worldwide, 2016
Note: The views expressed herein are those of the author and do not necessarily reflect the views of Morgan Stanley Wealth Management or its affiliates. Neither the information provided nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.
John Zitzmann is a financial advisor with Morgan Stanley Global Wealth Management in Providence, Rhode Island. The information contained in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Morgan Stanley and its Financial Advisors do not provide tax or legal advice. Individuals should seek advice based on their particular circumstances from an independent tax advisor. Information contained herein has been obtained from sources considered to be reliable, but we do not guarantee their accuracy or completeness.
Morgan Stanley Smith Barney, LLC, member SIPC. CRC 1731933 04/17